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LONDON – The United Kingdom is raising taxes by an eye-watering £40 billion ($52 billion), as the government seeks to plug a hole in its finances by targeting higher earners, wealthy foreigners and businesses.
UK finance minister Rachel Reeves, the first woman to ever hold the position, unveiled the tax hikes Wednesday in the ruling Labour Party’s first budget since it won a landslide victory in a general election in July. The measures — which will increase annual government revenue by £41.5 billion ($54 billion) by the end of the decade — push the tax take to a record 38% of gross domestic product, according to the Office for Budget Responsibility, the UK government’s fiscal watchdog.
“Today, I am restoring stability to our public finances and rebuilding our public services,” Reeves said, arguing that the now-opposition Conservative Party had “failed” Britain, including by inadequately budgeting for required government spending. “The British people have inherited their failure. A black hole in the public finances. Public services on their knees. A decade of low (economic) growth. And the worst parliament for living standards in modern history,” she added. Reeves described her budget as charting a “responsible” course while making tough but necessary trade-offs.
“I have had to take some very difficult decisions on tax,” she said. Reeves had few easy options. Britain has suffered years of lackluster economic growth, low levels of business investment and only tepid improvements in living standards. A mounting public debt burden — virtually the same size as the economy — means that ever more of the government’s budget is hoovered up by borrowing costs, leaving less for crumbling public services, including the stricken National Health Service.
Before its election victory, Reeves’ Labour Party had pledged to keep taxes on working people “as low as possible,” promising to not raise income tax, sales taxes or payroll taxes. On Wednesday, the government targeted higher earners instead, announcing plans to tax inherited pensions and unveiling increases to capital gains tax, which is paid on the profits made when selling investment properties and financial assets such as shares.
“The change is a blow for investors… it also makes investment less attractive for newcomers,” said Sarah Coles, head of personal finance at UK financial services firm Hargreaves Lansdown. “Already, far fewer people in the UK invest than elsewhere in the world, and this could compound the problem.”
Reeves also said the government would move ahead with plans, first announced by her predecessor, to abolish the non-domiciled tax regime that applies to people who live in the UK without paying tax in the country because they claim to have permanent residence abroad. The government will instead introduce a new tax system for such individuals, raising £12.7 billion ($16.5 billion) over the next five years. In another salvo targeting the jet-setting super-rich, Reeves increased duties on private jet travel by 50%, which she said amounted to an additional £450 ($585) per passenger for a flight to California. (CNN)…[+]